Europe’s peripheral nations are facing the highest borrowing costs in at least six months as investors shun the issuers that may be most at risk if Greece defaults. Even with the European Central Bank rolling out 1.1 trillion euros ($1.2 trillion) of government-bond purchases, Spain’s 10-year yields touched 2.54 percent on Tuesday, the highest since August. Italy’s were the highest since October while Ireland and Portugal are also seeing the steepest borrowing costs this year. Investors are cutting their exposure to peripheral debt as Greece and its creditors square off over the terms of another aid payment. As that dispute fuels concern that Greece could default on the International Monetary Fund as early as this month, the fallout is reviving memories of the budget angst and financial turmoil that threatened to tear the euro apart three years ago. “We are seeing contagion from Greece for the first time since 2012,” said Mauricio Vargas, a Frankfurt-based economist at Union Investment, which manages more than 200 billion euros of assets, including bonds from Spain and Italy. “That’s a matter of big concern to me because it’s a sign of systemic risk that markets have been ignoring.” Extending QE Even at the current levels, the selloff is damping the effects of QE and could jeopardize the efforts of governments in the bloc’s recent trouble spots to rein in their budget deficits, said Neil Williams, chief economist at Hermes Investment Management. “This yield surge would, if sustained, undoubtedly strain budget positions,” Williams said by e-mail. “QE may have to be extended to 2017.” As the ECB signals it may step up QE before the summer and the Greek crisis comes to a head, peripheral bond yields have doubled from the record lows reached in March. Volatility could increase in coming weeks, according to Alberto Gallo, the head of European macro-credit research at Royal Bank of Scotland Group Plc. “The ECB’s proposed front-loading of purchases could put a lid on yields going into the summer,” Gallo wrote in a note to investors Tuesday. “It has not happened yet and it’s unlikely to be enough to compress yields back to the levels of two months ago.” Spanish Budget Spain still has to raise more than 62 billion euros of medium- and long-term debt this year according to the government’s borrowing plans. The country budgeted 35.6 billion euros for interest payments this year, assuming the average yield on 10-year bonds would be 1.3 percent. In 2012, it reached 7.75 percent. “The Spanish government was too optimistic,” said Riccardo Barbieri, chief European economist at Mizuho International Plc in London. If yields remain at 2.4 percent through the end of next year, it will add about 1 billion euros to Spain’s deficit this year and 2 billion euros in 2016, he said. Spain already has the European Union’s second-biggest budget shortfall and has been under the European Commission’s budget surveillance program since 2009. Its 2014 shortfall of 5.8 percent was surpassed by only Cyprus. Prime Minister Mariano Rajoy wasn’t alone in building the benefits of the ECB’s quantitative-easing program into his budget for this year. Tsipras Tensions In Italy, Matteo Renzi’s 2015 spending plans assumed his country’s 10-year bond yields would average 1.6 percent. On Tuesday investors were demanding 2.33 percent. While Italy complied with the EU budget deficit limit of 3 percent last year, its total debt reached 132 percent of GDP. In the EU, only Greece has more. The Portuguese Prime Minister Pedro Passos Coelho is already addressing concerns about the liquidity buffers his country has to face a worsening of the financial conditions. “If anything happens we have reserves to face any more serious financing restriction that might occur in international markets,” Coelho said Tuesday night at an event in Oporto, northern Portugal. “And that’s the reason why if something more serious happens in Greece, Portugal won’t fall next because it doesn’t have any problem of financing in the markets.” His comments were broadcast by television station RTP. Greek Prime Minister Alexis Tsipras is fueling investors’ concerns, adopting an increasingly aggressive tone toward his country’s creditors as the deadline for a settlement approaches. On Tuesday he branded the IMF’s treatment of Greece “criminal” and accused the ECB, which excluded Greece from the QE purchases, of throttling the Greek banking system. Greece has two more weeks to reach a deal.